Olo Inc

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the OLO Third Quarter 2021 Earnings Conference Call. All lines have a place on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I'll now send the call over to OLO's VP of Investor Relations, Ms. Stephanie Dalkus. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to OLO's third quarter 2021 earnings conference call. Joining me today are Noah Glass, OLO's founder and CEO, and Peter Benedides, OLO's CFO. During our call today, some of our discussion and responses to your questions may contain forward-looking statements, which represent our beliefs and assumptions only as of the date statements are made. These forward-looking statements include, but are not limited to, statements regarding our expectations of our business, future financial results, and guidance and strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements, and such risks are described in our risk factors included in our SEC filings, including our quarterly report on Form 10-Q for the quarter ended September 30, 2021 that will be filed with the SEC following this earnings call. You should not rely on forward-looking statements as predictions of future events. We undertake no obligation of updating any forward-looking statements made during this call to reflect events or circumstances after today. Also, during this call, we'll present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release which we issued a short while ago. This earnings release is available on the investor relations page of our website and is included as exhibit in the form AK, furnished to the SEC. Finally, in terms of our prepared remarks or in response to questions we may offer incremental metrics, please be advised that this additional detail may be one time in nature and we may or may not provide an update in the future on these metrics. I encourage you to visit our investor relations website at investors.olo.com to access our earnings release periodic SEC reports, a webcast replay of today's call, or to learn more about OLO. With that, let me turn the call over to Noah.

Thank you, Stephanie. Hi, everyone. Thank you for spending time with us today. In the third quarter, OLO's strong revenue growth and profitability momentum continued as we took meaningful strides toward our vision of digital entirety, touching, adding value to, and deriving revenue from every restaurant transaction. We drove digital transactions across every service model, takeout, delivery, drive-through, and on-premise, while announcing new tools to enable brands to both realize the promise of digital hospitality and improve key facets of their businesses as truly customer centric and data informed enterprises through the recent acquisition of Wisely. Our platform supported year over year growth in transaction volume. We increased our product portfolio and use cases. We added new and expanded existing restaurant relationships and we grew our technology partner ecosystem. This quarter, Our ending active location count increased 26% year-over-year to approximately 76,000 locations. Notably, we also celebrated the milestone of welcoming our 500th restaurant brand, further increasing the critical mass of Olo's exclusive restaurant network of marquee and must-have restaurants. I'm excited and honored that so many restaurant brands have selected Olo as their on-demand platform and digital transformation partner. We also continued our mission to help restaurant brands thrive by best meeting the needs of the on-demand consumer. Meeting the needs of the on-demand consumer extends beyond deploying resources for order taking, and it extends beyond our ambitions of digital entirety. In fact, it extends beyond transactions. Meeting the needs of restaurant brands and the on-demand consumer requires a customizable technology solution with fine-grained controls. leading to operational efficiency that enables brands to focus on their guest experiences, both off-premise and now on-premise as well. As guests increasingly return to on-premise dining, our Open SaaS platform provides restaurant brands with solutions to best serve their guests and enables brands to better manage their enterprise and flexibly respond to industry developments. With the integration of Weisly's products, our platform will harness data from all customer interactions, including non-digital orders, enabling brands to further build direct relationships with their customers. Olo is, and always will be, the restaurant industry's true digital partner, aligned with restaurant brands' best interests in mind. Quarter over quarter, we continue to add new brands to our platform, as restaurant brands recognize our ability to partner and add value for them. This quarter, we were proud to welcome a number of restaurant brands, including CKE and Dave's Hot Chicken. CKE, parent to leading QSR brands Carl's Jr. and Hardee's, re-platformed from a fragmented technology stack, leveraging the OLO ordering module to implement a highly customized and personalized digital program to meet the evolving needs of the customers. Ordering allows brands to forego the cost of building, maintaining, and securing their own digital ordering and delivery platforms, while retaining direct relationships with their customers and maximizing profitability. Dave's Hot Chicken, a fast casual brand, adopted the Ola ordering, dispatch, rails, and network modules. Dave's Hot Chicken's implementation of Olo as their brand's on-demand commerce solution of choice provides their customer with the convenience to order across multiple digital channels and gives Dave's Hot Chicken the operational ability to prioritize the most profitable digital ordering channels. As the brand experiences rapid growth, Olo's scalable technology is able to grow with the brand and serve as a true digital partner. In addition to launching with new restaurant brands, we further grew our engagement with existing restaurant brands. I've previously discussed Olo's historical success and demonstrable ability to grow within our restaurant base through the development of products that our restaurants value. Most recently, I discussed this on our wisely acquisition call just a few weeks ago. OLO's collaborative approach with our restaurants and our product advisory council specifically yields inherent product-market fit, which manifests in high uptake. Our highly efficient go-to-market motion that enables us to deploy our modules across all new and existing brand locations without incremental sales and marketing costs and upsell new offerings to the brand itself rather than each individual location, further drives our upsell success and related ARPU growth. And I'm excited to provide two examples of this sales motion, Bojangles and Denny's. Bojangles, a leading QSR brand, previously deployed the OLO Rails module and recently launched the OLO ordering module with a custom website and app. Bojangles' adoption of multiple OLO modules represents our ability to best meet the needs of the on-demand consumer. Longtime partner Denny's, a top family brand, previously implemented all three of OLO's core modules, ordering, dispatch, and rails, as tools to help unlock off-premise sales and improve the customer experience through direct channels. This quarter, Denny's expanded its adoption of OLO solutions by adding the OLO Network module. Network allows restaurant brands to take orders from non-marketplace digital channels, such as Google Food Ordering, which enables restaurants to fulfill orders directly through Google search results and Maps pages. Network further enables digital ordering for restaurants and derives additional transactional revenues for OLO. This quarter, we also continued our success with virtual and delivery-only concepts, enabling virtual dining concepts NASCAR Refuel brands to quickly deploy their delivery-only dining experience to their large group of followers. NASCAR Refuel allows fans of the auto racing spectator sport to have the opportunity to enjoy the most iconic NASCAR dishes any time of the year at home. OLO's partnership with NASCAR ReFuel and other virtual dining concepts brands such as Mr. Beef Burger and Buddy B's Cake Slice gives restaurants a complete and quickly deployable technology solution in order to maximize restaurant profits. We believe that our open SaaS platform provides restaurant brands with a flexible technology stack by aligning our solutions with the needs of the restaurant, giving each restaurant brand the power to curate their optimal technology stack from a portfolio of solutions in conjunction with solutions from Olo's open ecosystem of over 100 technology partners. As an example, Roll'em Up Taquitos, a fast casual brand, announced in September that it would add five new technology vendors to offer products and services to Roll'em Up Taquitos' rapidly growing franchise base. These partnerships, which included Olo, bolster the fast-growing brand's digital presence. Rollemult Taquitos believes that partnering with these vendors was important as the restaurant industry relies heavily on technology in order to provide the best quality of services and experiences for its customers. And we couldn't agree more. Restaurants are having to adapt to new and complex challenges and are using technology as a solution. Holo's fully customizable technology stack and open SaaS platform keeps restaurants well-equipped not only best serve their customers, but also to flexibly respond to industry trends, whether transitory, such as labor shortages, or permanent, such as the on-demand consumer. We continue to invest to help our brands transition to digital, as well as deal with transitory labor challenges. Two tools that address this are the OLO Switchboard Module and the OLO Expo Module. Switchboard is a solution that helps restaurant brands to manage phone ordering. Switchboard allows call center agents to place orders through OLO's dashboard. The Switchboard interface seamlessly routes orders to the necessary locations to begin preparation. Orders placed through Switchboard arrive at the store the same way any order placed through other modules would be sent down to the store for pickup or delivery. Switchboard call center functionality alleviates staff shortages while allowing restaurants to continue to take orders by phone. Expo is a tablet-based software solution to enhance the front-of-house workflow of store locations using Ola's PLS-integrated platform. Expo reduces pain points associated with managing digital programs, allowing interoperability between front-of-house and back-of-house teams. and consolidating orders regardless of how orders are placed and how they are handed off. This allows restaurants to better address labor challenges as well as supply chain challenges. Almost 10,000 restaurant locations already utilize Expo, enabling these restaurants to utilize OLO as a force multiplier and flexibly address temporary industry challenges. These examples demonstrate our platform's ability to increase functionality, improve store operations, and ultimately address myriad business issues within the restaurant. Just as our sophisticated on-demand commerce platform enables brands to choose from a broad set of capabilities, our open partner ecosystem of over 100 best of breed restaurant technology partners allows brands to fully customize their technology stack, whether directly through our platform or together with our partners. Olo is committed to operating as an open ecosystem with the freedom of technology choice for restaurants to better serve them and enable brands to better manage their enterprise. We've created a two-sided network consisting of 76,000 restaurant locations and a partner ecosystem of over 100 restaurant technology partners. This creates a flywheel. in which adding a new restaurant to our restaurant network benefits all OLO partners, and adding a new technology partner to our partner network benefits all OLO restaurants. And we continue to strengthen this ecosystem by expanding our partnership network. This quarter, we expanded relationships with existing technology partners, Uber and Waiter, adding both partners to the OLO dispatch network. Dispatch is a delivery as a service solution that allows restaurants to offer and expand delivery for orders generated via their own websites and apps through a network of more than two dozen delivery service providers, or DSPs. With the expansion of Dispatch's network of DSPs, restaurant brands on Ola's network will have an expanded network of delivery partners, more competitive pricing, differentiated service hours and more driver redundancy increasing driver availability on the dispatch network this is imperative for restaurants as it allows them to satisfy growing customer demand for food delivery without the complications of managing their own drivers and open new revenue channels through a direct digital experience finally i'm pleased to share an update in connection with our olo for good initiative We launched OLO for Good earlier this year and joined the Pledge 1% movement, committing to donate 1% of our time, equity, and product to doing good. As part of that, we committed to donating 1% of OLO shares over 10 years to our independent donor-advised fund managed by the Tides Foundation. I'm thrilled to share that recently the Tides Foundation has granted $4.9 million in total from our donor advised fund to the following nine organizations. Black Girls Code, Clean Air Task Force, Emma's Torch, Feeding America, Food Corps, Girls Who Code, Giving Kitchen, the Let's Empower Employment Initiative, and Natural Resources Defense Council. These grant recipients are organizations that align with our OLO for Good pillars, advancing all aspects of diversity, equity, and inclusion, providing relief and support for the restaurant industry and its frontline workers, ending childhood hunger and increasing access to food, and protecting natural resources and reducing waste and emissions. We expect to have an annual grant cycle going forward, and I'm optimistic and enthusiastic about our ability to use OLO as a platform for social impact and positive change for our communities. To summarize, I am extremely proud of our third quarter results and our ability to enable restaurants during this period. As on-premise transactions increase in the wake of restaurant reopenings and restaurants struggle to staff their dining rooms, Ola will continue to be a force multiplier for restaurants, enabling them to do more with less, allowing technology to step in where possible, and supporting restaurants to thrive and benefit from the restaurant industry's digital transformations. And now I'd like to turn things over to Peter Benavides, OLO's CFO, to share more details on OLO's third quarter performance. Peter? Thanks, Noah. Today I'll review our third quarter fiscal 2021 results in detail and provide guidance for the fourth quarter and full year fiscal 2021. Total revenue in the third quarter was $37.4 million, up 36% year-over-year. Platform revenue in the third quarter was $36.1 million, up 38% year-over-year, primarily due to an increase in active locations coming onto the platform and further increases in ARPU due to continued multi-product adoption, multi-partner adoption, and increased transaction volumes. In terms of key metrics, we ended the quarter with approximately 76,000 active locations on the platform, a 26% increase year over year and a 3% increase sequentially. As Noah mentioned, this included deploying a number of new brands such as CKE and Dave's Hot Chicken, amongst others. Our food for the third quarter was approximately $484, representing an 8% increase year over year and roughly flat quarter to quarter. Year-over-year growth in ARPU was the result of further increases in multi-product and multi-partner adoption and increased transaction volumes. Specific to transaction volumes, we were pleased with the continued durability of digital orders in the third quarter. Despite seasonality effects we typically see in the third quarter, continued return to in-person dining, and transitory labor challenges, digital ordering proved durable with volumes exceeding expectations. Lastly, net revenue retention remained strong in excess of 120% for the third quarter, as we successfully upsold to existing clients, such as Bojangles and Denny's, which Noah mentioned earlier. While we have observed strong upsells throughout this year, we have also experienced new customers subscribing to more than one product from the onset of their relationship with Ollo. While this drives higher ARPU, it leaves less room for net revenue retention expansion. That said, we anticipate strong gross retention, continued product development, and increased transaction volumes, factors supporting strong net revenue retention over the long term. For the remainder of the financial metrics disclosed, unless otherwise noted, I will be referencing non-GAAP financial measures. Gross profit for the third quarter was $30.2 million. representing a gross margin of 81% compared to a gross margin of 83% a year ago. Platform gross margin for the third quarter was 84%. This compares to platform gross margin of 87% a year ago. As expected, the year-over-year decrease in gross margin was driven by an increase in headcount and associated compensation costs to support the rapid growth in transaction volumes and active locations added to the platforms. Sales and marketing expense for the third quarter was 4.2 million, or 11% of total revenue. This compares to 1.9 million and 7% a year ago. As expected, on a dollar basis, increases in sales and marketing spend were driven by continued expansion of our sales, marketing, and business development teams in an effort to continue to add more locations to the platform, increase upsell and retention efforts, and expand our partnership ecosystem. Research and development expense for the third quarter was 11.9 million, or 32% of total revenue. This compares to 7.5 million and 27% a year ago, reflecting our continued commitment to investing in innovative solutions to support the rapidly evolving needs of our customers. General and administrative expense for the third quarter was 9 million, or 24% of total revenue. This compares to 4.8 million and 17% a year ago, As expected, on a dollar basis, increases were primarily tied to increased costs and headcount associated with operating as a public company. Operating income for the third quarter was $5.1 million compared to $8.8 million a year ago. Net income in the third quarter was $5 million or $0.03 per share based on approximately 185.1 million fully diluted weighted average shares outstanding. Turning our attention to the balance sheet and cash flow statement, our cash, cash equivalents, and marketable securities balance was $597.7 million as of September 30th, 2021. This total does not reflect the $77 million of cash paid in conjunction with the acquisition of WiseWeek, which closed on November 4th. Regarding cash flows, operating cash flow was $10.7 million compared to $4.1 million a year ago. Free cash flow was $10.2 million compared to $3.5 million a year ago. I'll wrap up by providing our guidance for the fourth quarter and full year 2021. For the fourth quarter, we expect revenue in the range of $38.8 million to $39.3 million and non-GAAP operating income in the range of $2.8 million to $3.2 million. For the fiscal year 2021, we expect revenue in the range of $148.2 million to $148.7 million and non-GAAP operating income in the range of $19.8 million to $20.2 million. I would like to highlight a few things to keep in mind about our outlook. We closed our acquisition of Wisely on November 4th. and therefore have included contributions of $1 million of revenue and $800,000 of non-GAAP operating loss in our guidance numbers for the quarter. Secondly, we remain prudent in our approach to forecasting given evolving industry dynamics. Specifically, anticipated factors such as the residual impacts from COVID-19 and seasonality effects and transitory impacts due to continued industry labor challenges That said, the underlying fundamentals of the business, a strong sales and deployment pipeline, durability of digital ordering, growth in the partnership ecosystem, and continued product innovation has us extremely excited for the path ahead. To summarize, we're extremely proud of our financial performance this quarter. which we believe reflects our continued ability to execute on our vision and the opportunity ahead. And we're even more excited about our position, the market opportunity ahead of us, and the impact we can have in helping our restaurants thrive while navigating the industry's evolving landscape. With that said, I'll turn things back over to the operator to begin Q&A. Operator?